2. UNIT I – INTRODUCTION TO
MANAGEMENT AND ORGANISATIONS
3. DEFINITION- MANAGEMENT
According to Harold koontz “ Management is an art of
getting things done through and with people in formally
organized groups”.
4. CONTIN…
Process of coordinating work activities so that they are
completed efficiently and effectively with and through
other people”.
7. CHARACTERISTICS OF MANAGEMENT
Management is a group activity
Management is a dynamic function
Management is goal oriented
Management is an economic resource
Management is universal in character
Management is a distinct process
Management is a system of authority
Management is a social process
Management is multidisciplinary
Management is situational in nature
8. OBJECTIVES OF MANAGEMENT
Proper utilization of resources
Improving performance
Mobilizing best Talent
Planning for future
9. SCOPE OF MANAGEMENT
Production Management
Marketing Management
Financial Management
Personnel Management
11. MANAGEMENT – SCIENCE OR ART?????????
The essential features of science are as follows:
(i) Basic facts or general principles capable of universal
application
(ii) Developed through scientific enquiry or experiments
(iii) Establish cause and effect relationships between various
factors.
(iv) Their Validity can be verified and they serve as reliable guide
for predicting future events.
12. MANAGEMENT AS A SCIENCE
Management has a systematic body of knowledge
consisting of general principles and techniques.
Universal principles: Management contains sound
fundamental principles which can be universally
applied.
Scientific enquiry and experiments: Mgmt principles
have been developed through experiments and
practical experience of a large number of
managers.
Cause and effect relationship: the principles of
management establish cause and effect
relationship between different variables
13. CONTIN……
Tests of validity and predictability: Principles of
management can also be tested for their validity.
For example, the principle of unity of command can be
tested by comparing two persons, one having a single
boss and other having two bosses. The performance of
the first person will be higher than that of the second.
14. MANAGEMENT - ART
The essential elements of arts are:
Practical knowledge
Personal skill
Result oriented approach
Creativity
Improvement through continuous practice
management fulfills:
A manager is judged not just by his technical knowledge but by his
efficiency in applying this knowledge
Every manager has his individual approach and style in solving
managerial problems.
Every manager applies certain knowledge and skills to achieve the
desired results
A manager effectively combines and coordinates the factors of
production to create goods and services.
manager gains experience through regular practice and becomes
more effective.
18. TYPES OF MANAGERS
Types of
Managers
Problem
Solving
Manager
Pitchfork
Manager
Pontificating
Manager
Presumptuous
Manager
Perfect
Manager
Passive
Manager
Proactive
Manager
19. TYPES OF MANAGERS
1. The Problem-Solving Manager:
The Problem-Solving Manager is task-driven and
focused on achieving goals.
20. TYPES OF MANAGERS
2.The Pitchfork Manager: People who manage by
a pitchfork lead their teams with a heavy and often
controlling hand: demanding progress, forcing
accountability, prodding and pushing for results
through the use of consequence, threats, scarcity,
and fear tactics. This style of tough, ruthless
management is painful for employees who are put
in a position where they are pushed to avoid
consequences rather than pulled toward a desired
goal.
21. TYPES OF MANAGERS
3. The Pontificating Manager:
These managers will readily admit they don't follow
any particular type of management strategy. As a
matter of fact, the only thing consistent about these
managers is their inconsistency.
22. TYPES OF MANAGERS
The Presumptuous Manager
Presumptuous Managers often put their personal needs
and objectives above the needs of their team. To them,
their personal production, recognition, sales quotas and
bonuses take precedence over their people and the
value they are responsible for building within each
person on their team
23. TYPES OF MANAGERS
5. The Perfect Manager:
These managers are open to change, innovation,
training, and personal growth with the underlying
commitment to continually improve and evolve as
managers. Perfect Managers rely on their vast
amount of product knowledge and experience when
managing and developing their salespeople.
24. TYPES OF MANAGERS
6. The Passive Manager: Passive Managers take
the concept of developing close relationships with
their team and coworkers to a new level. These
managers have one ultimate goal: to make people
happy.
25. TYPES OF MANAGERS
The Proactive Manager
The Proactive Manager encompasses all of the good
qualities that the other types of managers possess.
Persistence, edge, and genuine authenticity of the
Pitchfork Manager
Confidence of the Presumptuous Manager
Enthusiasm, passion, charm, and presence of the
Pontificating Manager
Drive to support others and spearhead solutions like the
Problem-Solving Manager
Desire to serve, respectfulness, sensitivity, nurturing
ability, and humanity of the Passive Manager
Product and industry knowledge, sales acumen,
efficiency, focus, organization, and passion for continued
growth just like the Perfect Manager
26. 1–26
WHAT IS MANAGEMENT?
Managerial Concerns
Efficiency
“Doing things right”
Getting the most output for
the least inputs
Effectiveness
“Doing the right things”
Attaining organizational goals
29. CLASSIFYING MANAGERS
First-line Managers
Individuals who manage the work of non-managerial
employees.
Middle Managers
Individuals who manage the work of first-line managers.
Top Managers
Individuals who are responsible for making organization-
wide decisions and establishing plans and goals that
affect the entire organization.
31. A. Interpersonal Roles arise directly from the formal
authority the manager has and involve interpersonal
relationships.
1. Figurehead role
The manager performs ceremonial and symbolic
duties by virtue of his position. They include: receiving
dignitaries, attending parties, visiting the sick
employees, etc.
2. Leadership role
This role is particularly performed by heads of units or
departments. As heads managers are responsible for
the work of people in that unit. As a leader he gives
directions, appraises performance, correct mistakes,
disciplines staff, motivates subordinates, determines
rewards and punishments, etc.
3. Liaison role
The manager ensures contacts with other units and
outside agencies on behalf of own unit. He works more
as a public relations officer.
32. B. Informational Roles. Due to his status and contacts the
manager gets to know a lot of information which may not be
available to his subordinates. This information he uses in a
variety of ways for the effective functioning of his unit.
4. Monitor
As a monitor of information, the manager scans his environment
for information. As a monitor of information he is continuously
keeping his ears open for all sources. Typically, this is done by
reading papers and talking with others.
5. Disseminator
After having acquired information, the manager also passes this
information relatively to his subordinates, superiors and
colleagues.
6. Spokesman role
The manager represents his unit and its problems in different
forums. As a spokesman, the manager presents the problem of
his unit to others, and presents information to others who control
his unit and so on.
33. C. Decisional Roles. By virtue of the position and authority vested in him,
a manager is continuously making decisions dealing with the unit's
strategy, allocation of resources, solving problems, etc.
7. Entrepreneurial role
The manager seeks to respond to the changing conditions of
environment. He is constantly looking for new ideas and initiating
development projects.
8. Disturbance handler
He responds to pressures and crisis situations.
9. Resource allocator
This role involves the allocation of resources: human, physical, financial
and other forms of resources to get things done. Allocation of his own
time and powers are important dimension
10. Negotiator
The manager is carrying on negotiations with external as well as internal
agents. The negotiator role is very important as the manager's capability
to negotiate determines the unit's performance.
34. MANAGERIAL SKILLS
Skill is the knowledge and ability that
enables one to do a job very well.
Managers need to develop different
skills in order to perform their duties
effectively. There are some basic
skills, which all managers should
possess.
35. WHAT DO MANAGERS DO? (CONT’D)
Skills
Technical skills
Knowledge and proficiency in a specific field
Human skills
The ability to work well with other people
Conceptual skills
The ability to think and conceptualize about abstract and
complex situations concerning the organization
40. CLASSICAL THEORY OF MANAGEMENT
(CLASSICAL APPROACH)
The classical approach is the earliest thought of
management and it was associated with the ways
to manage work and organizations more efficiently.
The classical approach are categorized into three
groups namely, scientific management,
administrative management, and bureaucratic
management.
41. SCIENTIFIC MANAGEMENT
Fredrick Winslow Taylor
The “father” of scientific management
Published Principles of Scientific Management (1911)
The theory of scientific management
Using scientific methods to define the “one best way” for a
job to be done:
Putting the right person on the job with the correct tools and
equipment.
Having a standardized method of doing the job.
Providing an economic incentive to the worker.
42. TAYLOR’S FOUR PRINCIPLES OF MANAGEMENT
1. Develop a science for each element of an individual’s work,
which will replace the old rule-of-thumb method.
2. Scientifically select and then train, teach, and develop the
worker.
3. Heartily cooperate with the workers so as to ensure that all
work is done in accordance with the principles of the science
that has been developed.
4. Divide work and responsibility almost equally between
management and workers. Management takes over all work
for which it is better fitted than the workers.
43. SCIENTIFIC MANAGEMENT (CONT’D)
Frank and Lillian Gilbreth
Focused on increasing worker productivity through the
reduction of wasted motion
Developed the microchronometer to time worker
motions and optimize work performance
How Do Today’s Managers Use Scientific
Management?
Use time and motion studies to increase productivity
Hire the best qualified employees
Design incentive systems based on output
44. 2–44
GENERAL ADMINISTRATIVE THEORY
Henri Fayol
Believed that the practice of management was distinct from
other organizational functions
Developed fourteen principles of management that applied
to all organizational situations
Max Weber
Developed a theory of authority based on an ideal type of
organization (bureaucracy)
Emphasized rationality, predictability, impersonality, technical
competence, and authoritarianism
45. ADMINISTRATIVE MANAGEMENT
Fayol’s 14 Principles of Management
Division of work: work specialization as the best way to use the human resources of
the organization.
Authority: Authority was defined by Fayol as the right to give orders and the power to
exact obedience.
Discipline: Employees must obey the rules and respect the rules that govern the
orgn.
Unity of command: Every employees should receive orders only from one superior.
Unity of direction: should have a single plan of action to guide mgrs and workers.
Subordination of individual interests to the general interest: the interest of any
one employee or group of employees should not take precedence over the interests of
the orgn. as a whole.
46. CONTIN……..
Remuneration: workers must be paid a fair wage for their services.
Centralization: this term refers to the degree to which subordinates are
involved in decision making.
Scalar Chain: the line of authority from top management to the lowest rank is
the scalar chain.
Order: People and materials should be in the right place at the right time.
Euity: Mgrs should be kind and fair to their subordinates.
Stability of Tenure of Personnel: Mgmt should provide orderly personnel
planning and ensure that replacements are available to fill vacancies.
Initiative: Employees who are allowed to originate and carryout plans will
exert high levels of effort.
Esprit de Corps: Promoting team spirit will build harmony and unity within
the orgn.
48. BEHAVIORAL APPROACH
Behavioral approach - It focused on
trying to understand the factors that
affect human behavior at work.
Elton Mayo – Father of Human relations
(Introduced human relations approach to
management thought)
49. •A series of productivity experiments conducted at
Western Electric from 1927 to 1932.
Experimental findings
Productivity unexpectedly increased under
imposed adverse working conditions.
The effect of incentive plans was less than expected.
Research conclusion
Social norms, group standards and attitudes more strongly influence
individual output and work behavior than do monetary incentives.
THE HAWTHORNE STUDIES
50. THE SYSTEMS APPROACH
System Defined
A set of interrelated and interdependent parts arranged in a
manner that produces a unified whole.
Basic Types of Systems
Closed systems
Are not influenced by and do not interact with their environment (all
system input and output is internal).
Open systems
Dynamically interact to their environments by taking in inputs and
transforming them into outputs that are distributed into their
environments.
52. IMPLICATIONS OF THE SYSTEMS APPROACH
Coordination of the organization’s parts is essential for
proper functioning of the entire organization.
Decisions and actions taken in one area of the
organization will have an effect in other areas of the
organization.
Organizations are not self-contained and, therefore, must
adapt to changes in their external environment.
53. THE CONTINGENCY APPROACH
Contingency Approach Defined
Also sometimes called the situational approach.
There is no one universally applicable set of management
principles (rules) by which to manage organizations.
Organizations are individually different, face different
situations (contingency variables), and require different
ways of managing.
54. WHAT IS AN ORGANIZATION?
An Organization Defined
A deliberate arrangement of people to accomplish some specific purpose
Common Characteristics of Organizations
Have a distinct purpose (goal)
Composed of people
Have a deliberate structure
55. TYPES OF BUSINESS ORGANIZATION
Organisation
Sole
Proprietorship
Partnership Company
Private Public
56. SOLE PROPRIETORSHIP- 72% OF
BUSINESSES
This is a one person business run by
the owner with his/her own money.
57. Economic Weakness of sole
proprietorship:
Unlimited Liability: you have total
responsibility for all debts and liabilities of
the company
Difficulty in raising financial capital
Limited size and efficiency
Limited managerial experience
Limited Life
Advantages of sole
proprietorships
Ease of start up
Ease of Management
You keep all profits
You do not have to pay any business
taxes
Psychological advantages
Ease of exit
59. Two major types of partnerships:
General Partnership: (most common type) all partners are
responsible for management and the financial
responsibilities of the partnership.
Limited Partnership: at least one partner is not active in
the day to day running of the business. They have limited
liability.
Is an agreement between 2 or more people to go
into business with a view to making a profit? There
can be no less than 2 members and no more than 20.
60. Advantages of Partnerships:
Ease of establishment
Ease of Management: each
partner has different things to offer
No special business taxes
Easier to raise financial capital
Larger than sole proprietorship
Easier to attract qualified
workers
Disadvantages of Partnerships
Unlimited liability
Limited partner is only responsible
for his initial investment. He has
limited liability.
Limited Life
Conflict between partners
PARTNERSHIPS
61. COMPANY
“A company is meant an association of many persons who
contribute money or money’s worth to a common stock and
employ it in some trade or business, and who share the profit
and loss (as the case may be) arising there from.”
62. COMPANY
The 2 types of limited company are:
Private limited company
Public limited company
63. PRIVATE LIMITED COMPANY
Uses Ltd after its name
Shares are sold mainly to friends and family of the
owners
Shares not offered to the public
The majority of the shareholders make the
decisions
Minimum number of shareholders is 2
Minimum amount of share capital is Rs.2,00,000 to
start up
64. PUBLIC LIMITED COMPANY
Uses Limited company after their name
Shares are open for sale to the public
Shares are traded on the stock exchange
PLC must have at least 5,00,000 of share capital to
start up
Managers control how the company is run
65. ADVANTAGES OF LIMITED COMPANIES
Limited Liability
Encourage investment from shareholders
Finance can be raised quickly from selling shares
Usually bigger than partnerships and sole traders, better
reputation for borrowing money
Continuity
66. DISADVANTAGES OF LIMITED COMPANIES
Main director is overruled by shareholders
Share prices might go down
Investors might stop giving you money
Information is open to the general public
Costly (£100,000 to produce an annual report and accounts)
Lots of paperwork to be drawn up…
Shareholders have majority votes….owners could be
voted out!
67. 3–67
THE ORGANIZATION’S CULTURE
Organizational Culture
A system of shared meanings and common beliefs held
by organizational members that determines, in a large
degree, how they act towards each other.
“The way we do things around here.”
Values, symbols, rituals, myths, and practices
Implications:
Culture is a perception.
Culture is shared.
Culture is descriptive.
69. STRONG VERSUS WEAK CULTURES
Strong Cultures
Are cultures in which key values are deeply held and
widely held.
Have a strong influence on organizational members.
Factors Influencing the Strength of Culture
Size of the organization
Age of the organization
Rate of employee turnover
Strength of the original culture
Clarity of cultural values and beliefs
70. BENEFITS OF A STRONG CULTURE
Creates a stronger employee commitment to the
organization.
Aids in the recruitment and socialization of new
employees.
Fosters higher organizational
performance by instilling and
promoting employee initiative.
71. ORGANIZATIONAL CULTURE
Sources of Organizational Culture
The organization’s founder
Vision and mission
Past practices of the organization
The way things have been done
The behavior of top management
Continuation of the Organizational Culture
Recruitment of like-minded employees who “fit”
Socialization of new employees to help them adapt to
the culture
72. HOW EMPLOYEES LEARN CULTURE
Stories
Narratives of significant events or actions of people that
convey the spirit of the organization
Rituals
Repetitive sequences of activities that express and
reinforce the values of the organization
Material Symbols
Physical assets distinguishing the organization
Language
Acronyms and jargon of terms, phrases, and word
meanings specific to an organization
74. ORGANIZATION CULTURE ISSUES
Creating an Ethical
Culture
High in risk tolerance
Low to moderate
aggressiveness
Focus on means as
well as outcomes
Creating an Innovative
Culture
Challenge and
involvement
Freedom
Trust and openness
Idea time
Playfulness/humor
Conflict resolution
Debates
Risk-taking
76. HOW THE ENVIRONMENT AFFECTS
MANAGERS
Environmental Uncertainty
The extent to which managers have knowledge of and
are able to predict change their organization’s external
environment is affected by:
Complexity of the environment: the number of components
in an organization’s external environment.
Degree of change in environmental components: how
dynamic or stable the external environment is.
79. WHAT IS PLANNING?
Managerial function that involves:
Defining the organization’s goals
Establishing an overall strategy for achieving those
goals
Developing plans for organizational work activities.
Concerned with both ends (what’s to be done) and
means( how it’s to be done)
80. DEFINITIONS
According to Alford and Beatt, “Planning is the thinking
process, the organized foresight, the vision based on
fact and experience that is required for intelligent
action.”
According to Billy E. Goetz, “Planning is fundamentally
choosing and a planning problem arises when an
alternative course of action is discovered.”
According to Allen, “A plan is a trap laid to capture the
future.”
81. NATURE AND PURPOSE OF PLANNING
Planning is an Intellectual Process
Planning contributes to the objectives
Planning is a Primary Function of Management
Planning is a Continuous Process
Planning Pervades Managerial Activities
82. WHY DO MANAGERS PLAN?
Purposes of Planning
Provides direction
Reduces uncertainty
Minimizes waste and redundancy
Sets the standards for controlling
83. Planning can be
Informal: not written down, short-term focus; specific to
an organizational unit.
Formal: written, specific, and long-term focus, involves
shared goals for the organization
84. IMPORTANCE & ADVANTAGES
Planning minimizes uncertainties
Planning facilitates management by objective
Planning facilitates co-ordination
Planning improves employee’s moral
Planning helps in achieving economies
Planning facilitates controlling
Planning provides competitive edge
Planning encourages innovations
Makes control effective
Delegation is facilitated
85. LIMITATIONS
Rigidity
Costly Process
Limited Scope
Influence of external factors
Non-availability of data
Peoples’s resistence
86. STEPS IN PLANNING
Being aware of
opportunity
Setting objectives or
goals
Considering Planning
Premises
Identifying Alternatives
Comparing the
alternatives in the light of
goals
Choosing an alternative
Formulating Supporting
Plans
Quantifying plans by
making budgets
87. CONT….
Being aware of opportunity
In light of
the market
competitors
what customers want
our strengths
our weaknesses
Setting objectives or goals
Where we want to be and what we want to accomplish and when.
Considering planning premises
In what environment – Internal or External will our plans operate?
88. CONT…
Identifying alternatives
What are the most promising alternatives to accomplish our objectives?
Comparing Alternatives in light of goals
Which alternative will give us the best chance of meeting our
goals at the lowest cost and highest profit?
Choosing an alternative
Selecting the course of action we will purpose.
89. CONTIN….
Formulating supporting plans
Such as plans to
Buy equipment
Buy materials
Hire and train workers
Develop a new product
Quantifying plans by making budgets
Developing such budgets as:
Volume and price of sales
Operating expenses necessary for plans
Expenditures for capital equipment
91. TYPES OF PLANS
Strategic Plans
Apply to the entire organization.
Establish the organization’s overall goals.
Seek to position the organization in terms of its
environment.
Cover long time period.
Operational Plans
Specify the details of how the overall goals are to be
achieved.
Cover short time period.
92. TYPES OF PLANS (CONT’D)
Long-Term Plans
-Plans with time frames extending beyond three
years
Short-Term Plans
-Plans with time frames on one year or less
Specific Plans
-Plans that are clearly defined and leave no
room for interpretation
Directional Plans
-Flexible plans that set out general guidelines,
provide focus, yet allow discretion in
implementation.
94. TYPES OF PLANS (CONT’D)
Single-Use Plan
-A one-time plan specifically designed to meet
the need of a unique situation.
Standing Plans
-Ongoing plans that provide guidance for
activities performed repeatedly.
95. OBJECTIVES
An objective is verifiable when at the end of the
period one can determine whether or not it has
been achieved.
96. GUIDELINES FOR SETTING OBJECTIVES
Should not be too long
Should cover the main features of the job
Should be verifiable
Should state what is to be accomplished and when.
The quality desired and the projected cost of achieving
the objectives should be indicated.
Objectives should present a challenge, indicate priorities
and promote personal & professional growth and
development.
97. MANAGEMENT BY OBJECTIVES (MBO)
Specific performance goals are jointly determined by
employees and managers.
Progress toward accomplishing goals is periodically
reviewed.
Rewards are allocated on the basis of progress
towards the goals.
Key elements of MBO:
Goal specificity
Participative decision making,
An explicit performance/evaluation period,
Feedback
98. STEPS IN A TYPICAL MBO PROGRAM
1. The organization’s overall objectives and strategies are formulated.
2. Major objectives are allocated among divisional and departmental
units.
3. Unit managers collaboratively set specific objectives for their units
with their managers.
4. Specific objectives are collaboratively set with all department
members.
5. Action plans, defining how objectives are to be achieved, are specified
and agreed upon by managers and employees.
6. The action plans are implemented.
7. Progress toward objectives is periodically reviewed, and feedback is
provided.
8. Successful achievement of objectives is reinforced by performance-
based rewards.
99. POLICIES
Policies are general statements or understandings that
guide managers thinking in decision making.
They ensure that decisions fall within boundaries.
The essence of policy is discretion.
100. NATURE OF POLICY
1. Policy is an expression of intentions of top
management.
2. It serves as a guide to decision making in an
organization.
3. It should be planned after taking into consideration
the long range plans and needs of an organization.
4. As policies live longer than the people therefore the
policies should be framed after serious thinking and
participation of the top executives.
5. Policies take a concrete step when they are put in
writing.
101. ADVANTAGES OF POLICIES
1. Better performance
2. Helps in control
3. Better industrial relations
4. Helps in enhancing co-operation
5. Consistency
102. PLANNING PREMISING
Premising: Planning made today is dependent upon
certain assumptions.
It constitutes a framework in which planning is to be
done.
Planning premises are made taking into
consideration both the past as well as the expected
events.
103. TYPES OF PLANNING PREMISES
Internal premises: include those that originate
from the sales forecast, existing policies and
procedures of an organization and capital
investment policies.
External premises: relating to Political, Social,
Technological and economical forces. These are
beyond the powers of any organization.
104. CONTIN….
Controllable premises: factors like materials, money
and machine are controllable factors.
Semi controllable: these are under partial control of
a business like labour relations and marketing
strategy.
Non controllable: which are beyond the control of
any organization like govt. policy, wars and natural
calamities.
105. STRATEGIC MANAGEMENT
The set of managerial decisions and actions
that determines the long- run performance of
an organization
106. IMPORTANCE OF STRATEGIC MANAGEMENT
1. It results in higher organizational performance.
2. It requires that managers examine and adapt to
business environment changes.
3. It coordinates diverse organizational units,
helping them focus on organizational goals.
4. It is very much involved in the managerial
decision-making process.
108. STRATEGIC MANAGEMENT PROCESS
Step 1: Identifying the organization’s current
mission, goals, and strategies
Mission: the firm’s reason for being
The scope of its products and services
Goals: the foundation for further planning
Measurable performance targets
Step 2: Doing an external analysis
The environmental scanning of specific and general
environments
Focuses on identifying opportunities and threats.
109. STRATEGIC MANAGEMENT PROCESS
(CONT’D)
Step 3: Conducting an internal analysis
Assessing organizational resources, capabilities, activities,
and culture:
Strengths (core competencies) create value for the customer and
strengthen the competitive position of the firm.
Weaknesses (things done poorly or not at all) can place the firm at a
competitive disadvantage.
Steps 2 and 3 combined are called a SWOT analysis.
(Strengths, Weaknesses, Opportunities, and Threats)
110. STRATEGIC MANAGEMENT PROCESS
(CONT’D)
Step 4: Formulating strategies
Develop and evaluate strategic alternatives
Select appropriate strategies for all levels in the organization
that provide relative advantage over competitors
Match organizational strengths to environmental opportunities
Correct weaknesses and guard against threats
111. STRATEGIC MANAGEMENT PROCESS
(CONT’D)
Step 5: Implementing strategies
Implementation: effectively fitting organizational
structure and activities to the environment.
The environment dictates the chosen strategy;
effective strategy implementation requires an
organizational structure matched to its requirements.
Step 6: Evaluating results
How effective have strategies been?
What adjustments, if any, are necessary?
112. DECISION MAKING
Decision
Making a choice from two or more alternatives.
The Decision-Making Process
Identifying a problem and decision criteria and
allocating weights to the criteria.
Developing, analyzing, and selecting an alternative
that can resolve the problem.
Implementing the selected alternative.
Evaluating the decision’s effectiveness.
115. STEP 1: IDENTIFYING THE PROBLEM
Problem
A discrepancy between an existing and desired state
of affairs.
Characteristics of Problems
A problem becomes a problem when a manager
becomes aware of it.
There is pressure to solve the problem.
The manager must have the authority, information, or
resources needed to solve the problem.
116. STEP 2: IDENTIFYING DECISION CRITERIA
Decision criteria are factors that are important (relevant)
to resolving the problem.
Costs that will be incurred (investments required)
Risks likely to be encountered (chance of failure)
Outcomes that are desired (growth of the firm)
117. STEP 3: ALLOCATING WEIGHTS TO THE CRITERIA
Decision criteria are not of equal importance:
Assigning a weight to each item places the items in
the correct priority order of their importance in the
decision making process.
118. CRITERIA AND WEIGHTS FOR COMPUTER
REPLACEMENT DECISION
Criterion Weight
Memory and Storage 10
Battery life 8
Carrying Weight 6
Warranty 4
Display Quality 3
119. STEP 4: DEVELOPING ALTERNATIVES
Identifying viable alternatives
Alternatives are listed (without evaluation) that can resolve the
problem.
Step 5: Analyzing Alternatives
Appraising each alternative’s strengths and
weaknesses
An alternative’s appraisal is based on its ability to
resolve the issues identified in steps 2 and 3.
121. CONT….
Step 6: Selecting an Alternative
Choosing the best alternative
The alternative with the highest total weight is chosen.
Step 7: Implementing the Alternative
Putting the chosen alternative into action.
Conveying the decision to and gaining commitment from those who
will carry out the decision.
122. STEP 8: EVALUATING THE DECISION’S
EFFECTIVENESS
The soundness of the decision is judged by its outcomes.
How effectively was the problem resolved by outcomes
resulting from the chosen alternatives?
If the problem was not resolved, what went wrong?
123. MAKING DECISIONS
Rationality
Managers make consistent, value-maximizing choices
with specified constraints.
Assumptions are that decision makers:
Are perfectly rational, fully objective, and logical.
Have carefully defined the problem and identified all viable
alternatives.
Have a clear and specific goal
Will select the alternative that maximizes outcomes in the
organization’s interests rather than in their personal interests.
125. MAKING DECISIONS (CONT’D)
Bounded Rationality
Managers make decisions rationally, but are limited
(bounded) by their ability to process information.
Assumptions are that decision makers:
Will not seek out or have knowledge of all alternatives
Will satisfice—choose the first alternative encountered that
satisfactorily solves the problem—rather than maximize the
outcome of their decision by considering all alternatives and
choosing the best.
Influence on decision making
Escalation of commitment: an increased commitment to a
previous decision despite evidence that it may have been
wrong.
126. DECISION-MAKING CONDITIONS
Certainty
A situation in which a manager can make an accurate decision
because the outcome of every alternative choice is known.
Risk
A situation in which the manager is able to estimate the
likelihood (probability) of outcomes that result from the choice
of particular alternatives.
127. DECISION-MAKING CONDITIONS
Uncertainty
Limited information prevents estimation of outcome
probabilities for alternatives associated with the
problem and may force managers to rely on intuition,
hunches, and “gut feelings”.
Maximax: the optimistic manager’s choice to maximize the
maximum payoff
Maximin: the pessimistic manager’s choice to maximize the
minimum payoff
Minimax: the manager’s choice to minimize maximum regret.
